The Bank for International Settlements (BIS) ranks the New Zealand Dollar as the 10th most commonly traded currency in the world. According to the Index of Economic Freedom, New Zealand’s steady gross domestic product (GDP) growth has helped the country rank as 1 of the freest in the world for over 20 years.
With strong regulation, a strong currency and a free people make for a great forex market. Out of 180 countries, New Zealand ranks 1st in Transparency International’s 2019 Corruption Perception Index. Private property and contract security are highly protected in New Zealand.
This security gives New Zealand forex traders an edge over many countries. The citizens of New Zealand are taking advantage of their strong economy and the forex market. Learn more about forex trading in New Zealand with our guide.
Get Started with Forex in New Zealand
Preparation is the key to success if you want to trade forex. Build your infrastructure so that your plans will thrive. Here is how to get started.
- Connect to the Internet. Make sure you have a solid Internet connection with no latency. You want to prevent lag because forex trades are all about timing.
- Search the best forex broker. You can easily connect to forex brokers across the world from New Zealand. Check brokers for compliance with the New Zealand Financial Markets Authority. This is not to be confused with the Financial Service Providers Register, which is only a directory.
- Open a forex brokerage account. Follow the process provided by your broker to open your account. Make sure you properly identify yourself and connect your proper bank account information.
- Put money in the account. Before you commit to a broker, it’s usually a good idea to start trading with virtual (not real) money. After you test that broker’s feature set, you can fund your account. Many brokers will allow funding through a check, debit card or credit card. Most now accept PayPal, Skrill or other electronic services too.
- Download your chosen trading platform. Your trading platform is what you will use to trade within the forex market. You’ll find that several high end brokers have proprietary trading platforms.
- Begin to trade. Now that you have done your research, practiced and set up your account, you can confidently begin trading in the forex market.
New Zealand Forex Trading Strategies
The forex market requires proper planning. Remain a student. Master various strategies to increase your chances of consistent profit. Start your journey with a gameplan.
If you enjoy interpreting hourly and daily charts, you will most likely enjoy trading off exchange rates. You can quickly earn profits by predicting the next movement on the chart. Price action traders are more concerned with a currency pair’s pattern of movement. These trades are meant to be fast — macroeconomic conditions and long term trends typically don’t matter as much when using this strategy.
Swing trading is a strategy that involves analyzing markets for pending corrective behavior and sometimes holding a position for longer than a day. This strategy requires having the ability to identify the highs and lows of a trend or trading range in advance. Swing trading is a slower strategy than day trading. In day trading you generally close all positions before the end of the trading day. Swing trading also often involves the use of momentum indicators.
Range trading requires identifying overbought and oversold currency pairs. Range traders may hold a trade for minutes, hours or days. Successful traders buy at the low points of the range and sell at the high points. Range trading works when a currency pair is moving within a range that can be predicted.
Position traders are long-term traders. They typically buy and hold for an extended period of time, which can be years. Position traders are interested in capturing the majority of a trend. Successful position traders rely less on market timing and more on understanding long term market conditions This strategy requires patience and knowledge of leading indicators.
Forex Trading Example in New Zealand
Let’s say that you believe that the current bid/ask spread of NZD/USD — 0.6600/0.6605 — is too low. You therefore decide to take a long position of NZ$100,000 versus the USD at the exchange rate of 0.6605 with the goal of profiting from the expected rise in the exchange rate. Through your broker, you can use leverage of 50:1, so you will need the equivalent of NZ$2000 in your margin account to control this position.
The NZD/USD exchange rate moves up according to plan. After 2 hours, it’s trading at 0.6650/0.6655. This is a move of 45 pips (0.6650 – 0.6605), and your profit on the trade is NZ$100,000*0.0050 or $500.
Making Money with Forex in New Zealand
The more knowledge you have of profitable financial vehicles, the more likely you are to succeed in forex when opportunities arise.
- Carry trading. Carry traders attempt to make a profit from the interest rate differential between different currencies. When you are long a currency in forex you gain interest on your holdings, and when you are short a currency, you pay interest on that debt.
- Binary options. An at-expiration binary option lets a trader speculate that a currency will be above or below a specific price point at a particular point in time, depending on the type chosen. If the bet turns out to be correct, then the option pays out a fixed amount to the holder.
- Shorting. Once you sell a currency pair at your desired exchange rate without closing out an existing position, you have shorted that currency pair.
Best Online Forex Brokers in New Zealand
On your road to success, you will find that your forex broker can be an integral piece of your winning strategy. Take your time and choose wisely.
You will need to familiarize yourself with a few basic terms before stepping into the forex market. Here are some of the most important:
- Pip. A pip is the smallest unit of exchange rate movement in the forex world. This is typically measured to the fourth decimal place or 0.0001 for most currency pairs.
- Lot size. It is important to note that a standard lot size is 100,000 units of base currency. You also have the option to trade in smaller lot sizes known as microlots.
- Orders. These are the various commands you use to enter and exit a position in the forex market.
- Calls. Buying a call gives you the right but not the obligation to buy one currency and sell another at a certain exchange rate on a predetermined date.
Trade Forex in New Zealand
New Zealand has many advantages for its forex traders, but the market will bite you if you are not prepared. For all of the protections that the government provides, traders can still fall victim to fraud with the wrong broker. For all of the strength of the New Zealand dollar, bad trading still loses money. Winners focus and study consistently.
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